Attempting the Production of Public Goods through Microfinance

Abstract

This article critically evaluates attempts to create public goods via microfinance loans in reference to the specific example of water and sanitation. The microfinancing of water and sanitation is a private business model which requires households to privately recognise, internalise and capitalise the bene-fits from improved water and sanitation. But household water and sanitation, being closely linked to underlying common pool resources, and being merit goods, have strong public goods characteristics and therefore depend on collective solutions. Two cases, from Vietnam and India, are presented and evaluated. Despite their dissimilar settings and designs, evidence is found that both projects encountered similar and comparable problems at the collective level which individual microfinance loans could not address. The problems encountered warn against an emergent micro-privatisation of water and sanitation through microfinance. JEL Classification: O16, O18, Q25, Z18